In his proposed budget for the coming fiscal year, Gov. Bill Walker takes a third crack at closing the state’s multibillion-dollar budget deficit. Next year, he might have a Legislature that’s willing to give serious attention to the revenue plans necessary to reduce and eliminate that deficit. In the new budget, the governor tries to walk a tightrope: How best to pare money from state operations for a third straight year while harming services as little as possible? In a crucial move for the state, he balances those cuts with restructuring of the Alaska Permanent Fund’s earnings reserve and other revenue increases in an attempt to provide a broader base for the state’s income than the overwhelming reliance on oil and gas production taxes.
The new budget, which covers the fiscal year beginning on July 1, 2017, would eliminate almost 800 positions from state government. Coupled with the roughly 2,500 positions already shed in the past two years, it’s a reduction of about 15 percent in the overall state workforce. Although the position cuts have helped reduce the overall state budget, they haven’t done a great deal to reduce the magnitude of the deficit. The difficulty in shrinking the amount of red ink owes to the significant percentage of items in the state budget over which the administration has little or no control — health care, pension obligations to state employees (those currently working and those who have already retired) and facilities maintenance, to name a few. Members of the incoming Legislature should recognize that and take the governor’s proposals for significant revenue changes seriously.
Back on the table will be a restructuring of the permanent fund earnings reserve, the centerpiece of every serious effort to balance the state budget. Though attempts to go forward with such a restructuring last session were labeled as attempted theft of the permanent fund dividend by political opportunists, little could be further from the truth. If the state is to maintain the level of services that Alaskans expect (based on the significant outcry when cuts touch popular programs), restructuring the earnings reserve is the only way to ensure the dividend will be around for future generations. Absent the increased revenue generated by such a plan, the Legislature will be forced to deplete the earnings reserve to cover the deficit, draining it entirely in a few short years and leaving no legal way to pay out dividend checks.
Even with the restructuring, more work will be required to bring the budget into balance. Gov. Walker’s budget would result in a $900 million deficit if passed unaltered, which would represent great progress but clearly is not a workable plan for the long term. Legislators will have to work with the governor to decide what additional revenue measures will be necessary. Measures proposing the revival of the state’s income tax were filed but saw no action during the last legislative session, and the new Democrat-led majority caucus in the House has already signaled its members plan to revive the debate over oil tax credits, which if left unchanged are forecast by the legislative budget and audit office to outweigh production revenues for the next 10 years or more. Whatever legislators and the governor decide, the prime mover in their decision should be the impact of their budget choices on Alaskans, especially those with limited means and little ability to absorb significant changes in expenses.
The table is set for the new legislative session in January. May the new group of lawmakers have the courage to make the hard choices about the state’s budget that many members of the former Legislature lacked.
— Fairbanks Daily News-Miner,